MBS Live Recap: Bonds Keep Tanking, Despite NFP Miss

The jobs report may have missed the mark in terms of payrolls, but average hourly earnings put in its 4th straight month holding 2.8% (y/y)  or higher.  Before these past 4 months, 2.8% was a unicorn we saw on only a few brief occasions before it ran back into the woods.  Bottom line: wage growth can't merely be eye-rolled away by econo-bears.  Believe me, I'd be the FIRST in line.  

4 months of 2.8%+ means the odds increase that inflation will run a bit hotter.  MBS Live hall-of-famer SK hit the nail on the head with this comment today:

Hear hear!  It is indeed striking that Powell's press conference comment (last week) about the Fed not seeing a risk of an upside inflation surprise was not only poorly translated by newswire writers, but also relied upon by traders as inspiration for a post-Fed bond rally. 

Powell was more than happy to set the record straight this week on Wednesday, when he gushed over the current state of the economy, even going so far as to say the business cycle can continue indefinitely, and that the next downturn wouldn't be too bad.  On the same day, the services sector saw its best report card (via ISM Non-manufacturing) since 1997, which had already gotten bonds thinking about whether or not last week's Powell comment was perhaps "not hawkish enough" on inflation risks.

Now I'm going to show you a chart with daily candlesticks of 10yr Treasury yields and you tell me if you think you can identify Wednesday.

Spoiler alert: it was the gigantic one!

Today sucked too, obviously, and for essentially the same reason.  Simply put: these past 2 months of data finally put us in a situation where sane market participants (as opposed to just a few quacks who were WAY early) are within their rights to wonder if the Fed is behind the curve and if the economy actually could grow/inflate faster than expected.  That's a new one... and it's scary if you're longer-term interest rate.